J Labour Market Res (2016) 49:297–315 DOI 10.1007/s12651-016-0211-3 ARTICLE Workforce segmentation in Germany: from the founding era to the present time Werner Eichhorst1 · Michael J. Kendzia2 Published online: 23 September 2016 © The Author(s) 2016. This article is available at SpringerLink with Open Access. Abstract Despite a more recent debate about ever deeper Die Segmentierung der Belegschaft in segmentation, the authors argue that since industrialization, Deutschland: von der Gründerzeit bis heute Germany has continually experienced a dual labor market. One segment contains the primary segment of better paid Zusammenfassung Trotz der jüngsten Debatte um eine and more attractive jobs, while the secondary segment en- zunehmende Segmentierung des deutschen Arbeitsmarkts, compasses rather low paid, less stable and less attractive argumentieren die Autoren, dass Deutschland bereits seit jobs. Dualization is the result of firms which are likely to der Gründerzeit eine duale Ausprägung des Arbeitsmarkts hire full-time and long-term workforce for its core activi- erfahren hat. Hiernach verfügt das primäre Segment über ties while relying on more flexible forms of employment besser bezahlte und attraktive Arbeitsplätze, wohingegen for other activities. Based on an in-depth examination of das sekundäre Segment eher gering bezahlte und weniger the structure of the workforce since 1871, the article inves- attraktive Arbeitsplätze aufweist. Diese Form des dualen tigates the factors which account for the origin, evolution Arbeitsmarkts resultiert aus Vollzeitstellen und zugleich and the peculiarities of the country’s core workforce. The langfristigen Beschäftigungsverhältnissen, die rundum der authors show that a non-negligible part of the working pop- Kernaktivitäten eines Unternehmens angesiedelt sind. Hin- ulation has always been subjected to marginalization, but gegen wird bei weniger relevanten Tätigkeiten auf flexible- that the dividing line between the two segments has changed re Beschäftigungsformen zurückgegriffen. Der vorliegen- over time as has the character of the respective groups. de Artikel untersucht die Belegschaftsstruktur innerhalb Deutschlands seit dem Jahr 1871 und gibt Einblick in die Keywords Core workforce · Industrialization · Peripheral Gründe für die Entstehung, die Entwicklung sowie die workforce · Workforce segmentation Besonderheiten der Stammbelegschaft in Deutschland. Die Autoren zeigen auf, dass ein nicht unerheblicher Teil der JEL classification N34 · J42 Belegschaft in Deutschland seit jeher einer gewissen Form der Marginalisierung ausgesetzt gewesen ist. Jedoch unter- lagen sowohl die Trennlinien als auch der Charakter dieser beiden Segmente im Verlauf der Zeit einem deutlichen Wandel. Werner Eichhorst [email protected] 1 Introduction Michael J. Kendzia [email protected] In recent political discourse, the marginalization and pre- cariousness of a part of the workforce is discussed either 1 Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), as a menacing phenomenon that looms large over the past Schaumburg-Lippe-Straße 5–9, 53113 Bonn, Deutschland decades (Vosko 2000; Kalleberg 2009;Ross2009)oras 2 ZHAW SML, Stadthausstrasse 14, 8401 Winterthur, Schweiz a much needed mechanism to increase a firm’s flexibil- K 298 W. Eichhorst, M. J. Kendzia ity (Saint-Paul 1996; Kalleberg 2001). However, research ment of the labor market is marked by long-term and stable on employment indicates that the workforce has always earnings, whereas the secondary segment is characterized been subjected to some sort of segmentation (Blossfeld and by unstable earnings. Mayer 1988; Pollert 1988) and that, from a historic per- Likewise, Hakim (1990) notes that the central workforce spective, the discourse on the use of a core and a peripheral of a company consists of workplaces related to a primary in- workforce appears exaggerated (Gallie et al. 1998). Against ternal sector. In particular those workplaces are permanent, this backdrop, this article seeks to examine the factors con- full-time and associated with firm-specific skills and result tributing to the emergence and change in the demarcation in long-term, stable earnings. Conversely, the secondary of a core workforce and its counterpart since the founding external sector comprises rather seasonal, casual and short- era (Gründerzeit), beginning with the establishment of the term contract work, work from home as well as some un- German Reich in 1871, to the present time in Germany. skilled work (Hakim 1990, p. 160). For this investigation The core workforce can be defined as workforce, in- it is essential that the dividing factors or mechanisms are cluding a longer duration of employment and significant categorized according to two underlying explanatory ap- firm-specific skills. In this article, these conditions serve as proaches (Lutz 1987): firstly, the economic-functional di- criteria to differ between the core and the peripheral work- mension and secondly, the political-institutional dimension. force. In doing so, the authors further specify that a longer The first argument contains the evolution of a core work- duration of employment comprises at least two years of force, which results from firms aiming at profitability and a employment for the same company. The main reason for long-term interest to survive. This approach entails the view this is that a fixed term contract within the industrial sector that a stable and long-term workforce, protected against in Germany today is not allowed to last longer than two employment risks and major competition, shows a highly years. Plus, firm-specific skills are understood as specific favorable cost-benefit ratio. According to the transaction capabilities, knowledge, and experiences within a strictly cost theory (Williamson 1984, 1985), employers aim at defined field of application – often comprising only a cer- safeguarding revenues resulting from firm-specific invest- tain section, production facility or part of the production ments, such as investments into human capital. Thus, it is process (Lutz 1987, p. 2–49). more cost-effective to retain a stable workforce and create The investigation of the workforce is carried out ac- an internal market than hiring new workers for each new cording to two basic segmentation theories which will be work task (Nienhueser 2014). The individual’s qualification presented in the next section. The investigation focuses serves therefore as a dominant pattern for both the horizon- primarily on workers and employees of industrial compa- tal and vertical division of labor within a firm. Following nies. Only in the end of this analysis, the service sector the basic logic of stairs, workplaces equal certain skill re- is addressed, as the structural change within the German quirements, which increase step by step. If a worker or economy led to a strong increase of service-related work- employee fulfills the duties of his workplace, it becomes places. Thereby, a workplace is understood as the overall most likely that even the requirements of the next, and sum of all tasks assigned to an individual worker or em- more demanding workplace, are met. Thus, those internal ployee (Lutz 1987, p. 55). Ever since the industrialization, climbers generate only low costs for the company. the chemical, electrical, metal and steel industry as well The second approach includes a political-institutional di- as the machine and automobile construction have occupied mension. This approach focuses on measures taken by so- the largest amount of workers and thus served as flagship cial partners, such as welfare-state arrangements in order industries. For this reason, the survey focuses on these to protect the workers and employees. Further literature, branches across Germany. in particular the radicals literature, see for instance Rubery (1978), Bruno (1979), and Craig et al. (1982), interprets firm-internal segmentation as a strategy to divide the work- 2 Theoretical background ing class. Those radical segmentation theorists argue that the workforce strategy in view of the promotion of inter- According to Reich et al. (1973), the segmentation pro- nal labor markets, and thus retaining workers within their cess inside the labor market can be described as a histori- firms, can be due to the intention to repel or push back the cal process, whereby political-economic forces promote the influence of unions (Lutz 1987, p. 7–152). division of the market into segments. Those segments, in The political-institutional dimension goes in line with turn, differ by certain labor market characteristics as well Piore (1983, p. 251), whereupon large parts of the labor as behavioral rules (Reich et al. 1973, p. 359). Referring market are regulated by institutions. An important example to further literature on this issue, Loveridge (1983)exam- constitutes labor market regulations, which are frequently ines the labor market dichotomization between a core and a shaped by the bargaining power of workers (Blanchard and peripheral workforce. According to him, the primary seg- Giavazzi 2001). Thereafter, union power, union coverage K Workforce segmentation in Germany: from the founding era to the present time 299 as well as the degree of coordination of wage agreements Advocates of the economic-functional strand (Doeringer (Layard et al. 2005, p. XV) significantly impact labor mar- and Piore 1971, 1975; Dickens and Lang 1985, 1988), how- ket legislation, including, for example, employment pro- ever, claim that labor market segmentation arises mainly tection legislation. By